Jay Powell reaffirmed his support for the Federal Reserve’s recent decision not to raise interest rates during a crucial congressional hearing on Wednesday. However, he indicated that further tightening is likely, as the battle against inflation is far from over.
Powell, the chair of the US central bank, explained to members of the House financial services committee that it was “prudent” to skip a rate increase last week, given the significant rate hikes the Fed has already implemented. Since March 2022, the federal funds rate has risen from near-zero to a range of 5 to 5.25 percent.
Powell emphasized that the full effects of monetary restraint will take time to manifest. He also acknowledged that the tightening of credit standards following the Silicon Valley Bank collapse in March could pose challenges for the world’s largest economy.
These comments followed the Fed’s latest policy meeting, where officials decided to keep rates steady after ten consecutive increases. This will allow them to assess how much further borrowing costs need to be raised to control persistently high inflation.
Last week, Powell defended this decision, stating that it was reasonable and made sense given the ongoing concerns about inflation. However, despite keeping rates unchanged this time, Fed officials indicated in their projections that they support two more quarter-point rate hikes later this year, with the first potentially occurring during the July policy meeting.
If these increases are implemented, the funds rate would rise to 5.5 to 5.75 percent. No rate cuts are expected until 2024.
Powell explained that not raising rates while signaling the need for higher borrowing costs is entirely consistent. He clarified that the level to which rates are raised is a separate question from the speed of the increases, which was crucial in the earlier stages but now less important. Powell justified the need for continued tightening by stating that inflation pressures remain high, and there is still a long way to go in bringing inflation back down to the target of 2 percent.
In their latest forecasts, Fed policymakers revised their expectations for core inflation to decelerate more slowly this year. They now anticipate it to moderate to 3.9 percent by the end of the year, slightly higher than the previous projection. Currently, core inflation has been hovering around 4.7 percent.
Powell later suggested that the two rate hikes indicated by the projections are a good estimate of what will happen if the economy evolves as expected.
You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.
Democratic lawmakers questioned Powell about the economic consequences of the Fed’s efforts to combat inflation. Maxine Waters, the top-ranking Democrat on the committee, supported the decision to pause rate increases.
According to the latest projections, most Fed officials now expect stronger economic growth this year compared to three months ago. However, the unemployment rate is predicted to rise by nearly 1 percentage point from its current level of 3.7 percent, which is typically associated with a recession.
Republicans focused on potential changes to the Fed’s regulatory framework following recent bank failures. Patrick McHenry, the chair of the House committee, urged the Fed to remain resolute in fighting inflation. He criticized the central bank for supervisory failures that contributed to the collapse of Silicon Valley Bank and warned against making regulatory changes during a time of economic uncertainty.
Powell acknowledged the need for transparent, consistent, and stable bank rules. However, he recognized that the Silicon Valley Bank incident highlighted the necessity for stronger supervision and regulation.
Denial of responsibility! VigourTimes is an automatic aggregator of Global media. In each content, the hyperlink to the primary source is specified. All trademarks belong to their rightful owners, and all materials to their authors. For any complaint, please reach us at – [email protected]. We will take necessary action within 24 hours.
